Agriculture, allied sectors on private equity firms’ radar
In the last five years, funds have allocated more than $1 bn in food and agri businesses in India
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Business News/ Companies / Agriculture, allied sectors on private equity firms’ radar
MUmbai: Private equity and venture capital firms are warming up to investments in agriculture and allied sectors—a trend that started with warehousing companies but is now extending to other segments like crop care.
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IDFC Private Equity, the PE fund of IDFC Alternatives Ltd and infrastructure financier IDFC Ltd, is among those looking at incubating and investing in such businesses.
IDFC PE is in the process of conceptualizing a crop-care business, which will manufacture and market third-party products, such as fungicides and biopesticides, under its brand name. It will also manufacture specific products.
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“We are trying to build a platform on the crop-care products side. Focus is on creating products, which do not cause harm to farmers or any person administering them, while being safe for consumption, as opposed to chemical pesticides," said Girish Nadkarni, partner, IDFC Alternatives.
According to Nadkarni, one of the reasons the fund decided to incubate a crop-care firm was the unorganized nature of agriculture and allied businesses.
“Most of the businesses are fragmented, and many run as mom-and-pop shops. There are no systems, processes, controls, governance mindsets. Most agri-businesses are cash businesses, so if you don’t have process and governance standards, it becomes extremely difficult to manage them," said Nadkarni.
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Zephyr Peacock India, a private-equity arm of the New York-based Zephyr Management Lp, is looking to incubate a firm in agri-input business and plans to acquire smaller, unorganized businesses under this platform.
Zephyr Peacock India, at present, is deploying capital from its second fund, which has a corpus of $70 million.
“We were looking for an existing sizeable business to invest in, but we could not find the right fit. Hence, we decided that we will build a scaled business by building the business bottom-up with a good management team," said Mukul Gulati, co-founder and managing partner, Zephyr Peacock India.
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IDFC PE and Zephyr Peacock declined to share details of their investments.
As per VCCEdge, the financial research platform of VCCircle, since January, four firms in the food and agriculture sector have raised $71 million. This compares with $68 million raised by 10 firms in 2014. Over the last five years, funds have allocated more than $1 billion towards food and agri businesses in the country.
In June, George Soros’s The Aspada Investment Co., which provides early-stage capital, invested $3.3 million in EM3 AgriServices Pvt. Ltd, which manufactures farm machinery. In March, Aspada invested $3.18 million in an agriculture products firm INI Farms Pvt. Ltd.
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“There is an increasing pressure on growing more food in India. This has created an opportunity to marry the trends of rising incomes, the need to grow more food and using the latest technologies around farm productivity, which have become economically viable to be deployed in a large way," said Kartik Srivatsa, managing partner, Aspada Investments.
Since 2011, the fund has made six investments in the agri space, committing almost $25 million of capital.
“In order to upscale and modernize, companies in these sectors need capital infusion. Also, companies have to set up vast distribution networks to reach out to the large, but scattered, farmer population, which again needs a lot of capital investment," said Dhanraj Bhagat, partner, Grant Thornton India Llp, adding that the market for agriculture products and services is huge and largely untapped by organized firms.
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To be sure, interest in agri-allied sectors, such as warehousing, has been strong. On 21 July, Fairfax India Holdings Corp. acquired a 74% stake in National Collateral Management Services Ltd (NCMSL) for about ₹ 800 crore. NCMSL is a private-sector agriculture warehousing firm. Another such firm, Sohanlal Commodity Management Pvt. Ltd, is in the process of going public.
“The rising income levels and changing lifestyles are creating an increasing demand for processed and healthy lifestyle agri products, which require large production and warehousing facilities. Also, with a huge entry barrier in this unorganized sector, it becomes pertinent that bigger investors come in and increase capacity in the sector," said an investment banker involved in one of the transactions mentioned above.
The banker didn’t want to be named.
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